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This page contains a single entry by Westley Annis published on December 12, 2008 7:18 AM.

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Foresight or Stupidity?

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Last week, Greg LeBlanc, Sr., owner of the Geri LeBlanc Pontiac Buick GMC franchise here in the Thibodaux area announced he is terminating his franchise agreement with GM. He cited the viability of GM as a going concern as his reason for closing the franchise.

Is this foresight on his part, as the Big Three (Ford, General Motors, Chrysler) automakers go to Congress asking for $35 billion in aid, or is it a bit of stupidity?

I am totally against the bailout for the automakers, just as I was against the bailout for the Wall Street banks. In my mind, there is simply no business in America that is too big to fail.

Let's examine the consequences of watching any of the automakers fail.

  • Lots of people will lose their jobs. This is happening anyway. The automakers have had a problem with staffing levels for years. How many of those that would lose their jobs have actually been building cars in the last five years anyway? Are these the same people who are collecting a paycheck from the Big Three for participating in their job bank, but refusing every job that is being offered to them?

  • Lots of retirees will lose their retirement benefits. This is actually one of the reasons the Detroit automakers have been having a problem turning a profit lately. Much of their cost is now wrapped up in providing healthcare benefits and pensions for retirees. While much of the business world was changing to a defined contribution retirement plan over the past twenty years, the automakers were stuck with a defined benefit plan by the auto industry labor unions. There is simply no way they can continue this in today's modern economy.

    In fact, take a look, the only jobs left with defined benefits, as opposed to defined contributions, are either remnants of old industry or government jobs where the politicians are too busy looking out for their own hides rather than their constituents.

  • Some companies with long histories will go out of business. It happens, but many other old companies have closed their doors also. Just in the New Orleans area, gone are Schweggmann Brothers Supermarkets, Katz & Bestoff Drug Stores, Maison Blache, and D.H. Holmes, just to name a few. On a national level, no one cried when PanAmerican Airlines went out of business.

Although they may declare bankruptcy, there is another company out there that would be willing to be buy the plants and equipment. They may even be willing to buy the name, and that is assuming that the companies go into Chapter 7 bankruptcy. There is always the possibility of Chapter 11 bankruptcy, which allows the companies to reorganize all their existing debt into something that is more manageable for them.

Of course, for any of this to work, the government has to get out of the way of business. Get rid of the CAFÉ standards. This is only forcing Detroit to make cars that no one wants to buy anyway.

The recent rise in gasoline prices was a perfect example of the market at work. As gas prices rose, sales of trucks and SUV's diminished while small cars and hybrids rose.

Although I do have a total lack of faith in the intelligence of the general population, for the most part I do think most Americans, if given the chance, will take the time to make an informed decision on the purchase of a car (they will take more time studying what car to buy than deciding which politician to elect).

To go back to our original question, is Greg LeBlanc showing foresight or is he being stupid to terminate his franchise agreement with General Motors? I think he is being stupid, but hey, that's just me.

Since I first originally drafted this post, the bail out plan has failed after talks collapsed over disagreements about union wage cuts.


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